Refresher on Trustee Reports

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Charities with an income of over £25,000 are required to send the Annual Report and accounts to the Charity Commission and there are certain requirements that need to be met in the Trustees’ Report. Some of the more problematical areas are public benefit, risk management and reserves and are covered in more detail below.

Public Benefit

This was introduced in the Charities Act 2006 and the Act set out 12 charitable purposes, including advancement of education, prevention or relief of poverty and advancement of religion. The 2 key principles of public benefit are:

  1. There must be an identifiable benefit, and
  2. The benefit must be to the public, or section of the public.

The trustees have a duty to report on their charity’s public benefit, including an explanation of how the charity fulfils this requirement. The Charity Commission has carried out 20 public benefit assessments to date and will continue to carry out checks on new and existing charities. Every organisation on the Register of Charities needs to show positively that it is set up and operates for the public benefit.

Risk Management

It is a requirement for larger charities to include a risk management statement in the Trustees’ Annual Report, but smaller charities are also encouraged to make a statement as a matter of best practice. The statement should confirm that the major risks to which the charity is exposed, as identified by the trustees, have been reviewed and that systems have been established to manage those risks.

The Charities SORP focuses on major risks which are those, which if they occur, would have a severe impact on operational performance, objectives or reputation of the charity and which have a high likelihood of occurring.

Trustees need to identify the risks and controls, assess the risks, evaluate what action needs to be taken on the risks and then carry out periodic monitoring and assessment.

Reserves

All charities are required to disclose in their annual report the charity’s policy on reserves. The Charity Commission have confirmed that many charities are not reporting their policy and many that do are very bland.

Reserves are defined as “the resources that the charity has or can make available to spend, for any or all of the charity’s purposes, once it has met its commitments and its other planned expenditure”. This therefore only refers to unrestricted funds and usually omits designated funds.

A charity’s purpose in reporting on reserves is to disclose the level of its reserves and to explain convincingly why it needs that level of reserves. The policy should cover as a minimum:

  • the reasons why the charity needs reserves;
  • what level (or range) of reserves the trustees believe the charity needs;
  • what steps the charity is going to take to establish or maintain reserves at the agreed level (or range); and
  • arrangements for monitoring and reviewing the policy.

The Charity Commission website,
https://www.gov.uk/government/organisations/charity-commission, provides example trustee reports for different sizes and types of charity that can provide further guidance.

For help and assistance with your Trustees Report, please contact ​Neil Cundale.